In a strong letter to the Ministry of Petroleum and Natural Gas and the Indian Oil Corporation (IOC), the Ministry of External Affairs (MEA) has said it does not envisage funding, ‘either as grant or credit’, the India-Nepal Raxaul-Amlekhganj oil pipeline project.

It has also advised IOC to exercise ‘utmost caution’ and ‘avoid making any commitments’, making the fate of the first-of-its-kind bilateral project between the two countries uncertain.

The MEA’s cautionary note comes even as the Nepal government has decided to ask IOC to develop the project under the ‘Build Own Operate Transfer’ (BOOT) model.

India is Nepal’s sole supplier of petroleum products, and maximum oil tanker traffic happens through the Raxaul border check-post in Bihar. The pipeline project was first proposed by IOC in 1997. It is expected to cut costs by 40 per cent, reduce loss and theft, and ensure an uninterrupted supply of fuel, which is of particular concern as frequent strikes and highway closures lead to crippling fuel shortages in Nepal.

MEA concerns

The MEA’s letter to IOC, in December 2012, was triggered by a Nepali media report that pointed out that the Nepal government had ‘revived plans’ to ask the IOC to build the 41- km pipeline, 2 km of which is in Indian territory and 39 km in Nepal. The approximate cost for the project is Rs. 100 crore. On April 2, the ministry’s northern division, which handles Nepal, asked the petroleum ministry to ‘kindly advice IOC that it should not make any commitments.’

The MEA noted that the project involved considerable land acquisition’ on both sides. Its implementation was also likely to elicit a ‘strong reaction from the powerful transporters’ lobby in Nepal’.

It added, “Given the complex political reality in Nepal, it would be advisable for IOC to handle the pipeline issue with utmost caution and avoid making any commitments for its execution unless there is absolute clarity on land availability on both sides, and a mutually accepted framework for security, construction, operation and management issues has been evolved.” It also said that the Nepali side must have a ‘strong financial stake’ in order to ensure their commitment to the project. An official source said that the ministry was not vetoing the project, but wanted more clarity. “It is all vague right now. What we are asking is that the Nepali side must think through the project, what it involves, and how will they manage the obstacles. This can then be taken forward.”

Nepal’s commerce secretary, Lal Mani Joshi, told  The Hindu  from Kathmandu, “The project has been on the table for a long time, and we are very keen to see it happen. IOC can construct the pipeline in two years. It can recover its investment in six years, and make profits in two more years. At the end of 10 years, the pipeline can be transferred to Nepal.” He said their proposal was in consultations with the IOC, which had responded ‘positively’. IOC sources in New Delhi, however, said that ‘no commitment’ has been made as yet.

‘Would be advisable to avoid any commitments unless there is absolute clarity’